UW study: Microsoft accounts for 13.6% of Wash. economy

If there was any doubt over Microsoft’s influence in Washington state, consider the findings of a new University of Washington study: The software titan accounted for 13.6 percent of the gross state product here in 2008.

The Redmond-based company generated $7 billion in worker compensation – up to $1.6 billion more than the state’s entire aerospace industry, said the study’s author, UW economics professor Theo Eicher. In 2008, Microsoft was (and it still is) the state’s second-largest private employer with 39,300 local employees, behind Boeing’s headcount of 76,400.

“We usually think of ourselves as a Boeing state,” said Eicher, who also is director of the UW Economic Policy Research Center. “When you see what’s happened since 1990 to the information technology sector in Washington state, a lot of that is attributable to Microsoft.”

The UW study – aptly titled “The Microsoft Economic Impact Study” – was commissioned by Microsoft but was based mostly on government data. In the four years since a similar study was published with 2004 figures, Microsoft’s local employment grew by 11,000.

After layoffs shrank Microsoft’s Puget Sound workforce by about 5,800 during the company’s 2009 fiscal year, its local headcount is now about 39,600. That makes the findings of the study, published in March but based on data from 2008, fairly applicable to today’s economic environment, said Brad Smith, Microsoft’s general counsel and senior vice president for legal and corporate affairs.

“Since 1990, 28.5 percent of all of the jobs created in Washington state are attributable to Microsoft and our local influence,” Smith, citing data from the UW study, said during a presentation Friday at UW.

In fact, a number of striking figures came out of Eicher’s study:

Microsoft was directly responsible for one out of every nine jobs created in King County from 2004 to 2008.

The average local Microsoft employee made $152,212 in 2008 – $178,159 if you include stock options. (The average aerospace worker made $87,113 in wages.)

Microsoft paid its employees a total of $7 billion and spent $2.15 billion on local goods and services. Smith said much of that $2.15 billion goes to local contractors and legal firms.

Combining those figures, Eicher calculated that Microsoft’s total contribution to Washington’s economy in 2008 was $9.16 billion.

Microsoft directly and indirectly generated a total of $18.95 billion in personal income, or 6.8 percent of the state’s personal income in 2008.

58.2 percent of the state’s information technology employees can attribute their jobs to Microsoft – by working there, contracting for the company or relying on Microsoft in some way.

Between 1990 and 2008, while state employment expanded at an average annual rate of 1.7 percent, Microsoft employment grew at a rate of 13.5 percent.

Between 1990 and 2008, Microsoft thus accounted for 28.5 percent of Washington’s job gain – making it “the single largest contributor to Washington’s employment growth since 1990,” the study states.

Microsoft’s “employment multiplier” was 6.81, meaning each Microsoft job supported 5.81 jobs at other companies. The typical employment multiplier is between 2 and 4; Boeing’s was estimated to be 4.

The employment multiplier takes into account that ‘Softies and their families inject money into Washington’s economy as consumers. Eicher calculated that Microsoft’s total local impact was 267,611 jobs – or 8.4 percent of Washington’s total 2008 employment.

To put this all in perspective, when Microsoft moved from Albuquerque, N.M., to Washington in 1979, it employed 30 people. In 1990, it had grown to 4,000 employees, supporting – as Eicher calculated – another 21,270 jobs in the state.

Additionally, according to a 2009 study by the Milken Institute, 23.4 of North America’s software jobs are in the Seattle area, thanks to Microsoft and its affiliated companies. That gives Jet City “a decisive lead in this category,” the study states.

Eicher said Seattle also ranks second among the country’s high-tech growth sectors. First place went to, unsurprisingly, Silicon Valley in California.

“(Microsoft) drives the information sector,” Eicher said, “which then drives the Washington state business sector.”

Click on the image below to view a gallery of a bunch of charts from the study and slides from Eicher’s presentation to media Friday: